'Separate mechanism for expanding insurance to village'

Chiranjibi Chapagain

Chairman, Insurance Board                                                                                                                                    

Seven decades have elapsed since insurance companies came into existence in Nepal, but the industry is still struggling to find its feet. Low penetration and coverage of the people are the big challenges facing it despite its quantitative growth. Altogether there are 27 life and non-life insurance companies, but they have covered only 7-8 per cent of the people with a market size of Rs. 47 billion. Their financial governance, coverage of the rural people and the capacity of the regulating body are often called into scrutiny. As a regulating body, the Insurance Board has a responsibility to ensure the smooth growth and governance of the insurance companies.

Its newly-appointed chairman, Chiranjibi Chapagain, has batten down the hatches to boost the insurance industry. Chapagai did his MBA and EMBA from Tribhuvan and Purbanchal University and had served at the central bank for two-and-a-half decades. Modnath Dhakal of The Rising Nepal talked with Chapagain on a wide range of issues relating to the insurance market scenario, the role of the IB as a regulator, access to insurance, health insurance and capital increment of the insurance companies. Excerpts:

You worked in the banking sector regulator, Nepal Rastra Bank, for a long time and now have taken over the reins of the Board. How do you see your responsibility?

Banking and insurance are parts of the same financial system. If we view the international tradition of regulation, the core principles of the banking and insurance sector are the same although the banking industry is leading the financial market. Insurance is not a new area for me. On the other hand, the first insurance company in Nepal was established as a sister organisation of Nepal Bank Limited some 70 years ago. Insurance is also seen as a risk minimisation tool for the banks. But in terms of development, the insurance sector in Nepal is still lagging behind the banking sector.

What is your vision to strengthen the insurance sector?

My focus will be to reform the policy and institutional aspects to strengthen the sector. The Insurance Act, 1968 is unable to address the changes that the insurance industry has undergone over the decades. The draft of the new act has been prepared and submitted to the Ministry of Finance. If promulgated, it will strengthen the Insurance Board with greater independence, capacity enhancement and human resource management, and will address the loopholes on the part of the insurers. There are 27 insurance companies with more than 400 branches, but we have only around 40 employees, which are insufficient for monitoring, evaluating and preparing the reports. Sometimes, the Board may take over the management of the insurance companies, but we don't have enough human resources for this.

Some people still doubt that a banker can be an efficient insurance regulator. What is your take on this?

If I take the responsibility just for the sake of the job, they may be right. Although we have a 74-year history of insurance, it is still in the initial phase. I am aware that there are a lot of challenges in this sector, and I have come here to face them and improve the entire insurance sector.

What are your plans to enhance access to insurance in Nepal, which still hovers around 7 per cent?

People's access to insurance is not satisfactory. The present 7-8 per cent coverage was due to the mandatory 'Foreign Employment Term Insurance'. The total market size of both life and non-life insurance has reached only Rs. 47 billion so far. Therefore, I think that increasing the coverage of insurance is the major challenge. I would like to begin the process by enhancing the capacity of the IB so as to have better regulation and expand the insurance coverage of the rural and far flung areas as well. Discussions are underway to establish a separate mechanism to expand insurance to the rural and far-flung areas. Most of the insurance companies are concentrated in the urban areas, especially the large cities, and are reluctant to go to the villages. Establishing such a mechanism will be instrumental in enhancing the people's access to insurance services. For example, micro-insurance will also help in enhancing both the coverage and access. The new insurance act will open possibilities for such initiatives. We are hopeful that the act will be passed by the parliament in the current fiscal year.

There is talk about granting licenses to new insurance companies while some experts voice that the number of companies is already more than enough and they should be merged. Do we need more insurance companies?

Regulatory bodies should not issue licenses without studying the market potential and size, and should not force the companies to increase their capital without convincing conditions. We should see the market size and its growth rate before issuing license and capital increment. There is a dire need of a new licensing policy. Currently, there are insurance companies run by the government, private sector, foreign joint venture and branch offices, but there is no clear provision for foreign joint venture companies and to operate a branch of foreign insurance companies in Nepal. There is possibility for more private sector, joint venture companies and operating branches in the country. Their licensing, size of capital and procedural aspects must be clear in the policy.

What will be the role of the Insurance Board in promoting and regulating the 'Health Insurance Policy' announced by the government through the budget of the current fiscal year?

I have participated in a discussion on 'Health Insurance' with the government. I heard that the government has implemented the policy itself and plans to enhance the coverage by establishing a separate board. The IB has asked the government not to develop and implement any insurance service product without consulting the board because the Insurance Act, 1992 has provisioned that such endeavours should be taken in consultation with the IB. It is an international practice that governments can develop and implement such policies for the welfare of the people, but the policy and regulatory measures should be clear. The IB will also be included in the board for health insurance, according to the draft of the law being developed. We want to bring 'Health Insurance' under the umbrella of the IB.

 Payment of 'Fire Insurance policy', which also covers losses occurred due to earthquakes, looks good in terms of the number of cases, but large amounts of housing company policies are yet to be cleared. What is the IB doing in this regard?

Claims of individual houses have almost been cleared, but the problem lies in the case of apartments. I found confusion in this case because the insurance policy has covered the flat (apartment) of the families, but the lifts, stairs and other common facilities have not been insured. The Board is yet to see the details of such cases, but will try to resolve it as per the international practice. The IB has suggested that the insurers address the common facilities of an apartment also in their insurance policies.

Insurance companies are waiting for a policy to allow them to invest in large infrastructure projects to utilise their insurance funds. Are there any preparations in formulating a policy to allow them to invest in infrastructure projects?

Currently, insurance companies can invest 5 per cent of their funds in infrastructure projects, and they want to invest more in such projects. But it might create problems as long-term infrastructure projects don't give returns for a couple of years, and sometimes, in the case of Nepal, some of these projects are delayed for years with cost overruns. In such a situation, an insurer might be unable to pay the insured money to its clients. It is a sensitive sector.

The share market has seen a huge upheaval due to the rumour of capital increment of the insurance companies. The NEPSE index went up as the price of the shares of insurance companies shot up, but the index dipped with the insurance sub-index getting reduced by more than 600 points in the last few weeks. Isn't this anarchy?

Investors spread rumours that the paid-up capital of insurance companies would be raised to Rs. 4-5 billion. The draft of the new insurance act has this provision. Investment in the capital market should be for returns, not for gain, but investors in Nepal are concentrated on making gains from their investment. The IB will put in efforts not to allow anyone to benefit from such rumours in the future. I would like to inform every investor and the general people that the paid up capital of insurance companies won't be raised to Rs. 4-5 billion, it will be far below that.

 Insurance companies are accused of being poor in financial governance. What are your plans to improve the situation?

Every company must adhere to the rules for better financial governance. The IB won't compromise in this regard. It will implement tested rules and regulations from the international market to improve governance in the insurance companies along with the capacity building of the Board. Monitoring and evaluation will be conducted on a regular basis.

Insurance agents have succeeded in securing favourable decisions from the IB. Don't you think it will adversely affect financial governance in the companies?

The agents staged an agitation for six months and halted transactions in the companies. I asked them to hold discussion to find an amicable solution within a month. The decision has come as a temporary solution for a short period. A permanent solution will be sought at the earliest through dialogue.

Do you think the Nepalese going to India in search of work will be encouraged to get approval from the government as per the announcement of the Prime Minister last week?

This is not about issuing work permit to the workers and creating bureaucratic hassles before they leave the country in search of work. We are trying to create a mechanism to assign an identity to every Nepali who leaves the country for employment. After the implementation of this plan, Nepalese working in India will have the facility of insurance that will cover accident, critical diseases and even death, which will benefit the worker and his/her family. The announcement that the Prime Minister made last week will facilitate the workers abroad and their families here. 

(Published in The Rising Nepal daily.)